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Hershey Opens Modern Facility in PA

Zacks Equity Research

The Hershey Company (HSY) announced the opening of its most technologically advanced manufacturing unit in Hershey, Pennsylvania. Hershey has made an investment of $300 million for setting up the facility, one of its biggest investments to date. Construction of this manufacturing unit began in September 2010 and was completed, as per schedule, in early 2012.

The 340,000 square-foot West Hershey unit is one of the company’s eight manufacturing plants in the U.S. The new facility will produce chocolate brands like Hershey’s Bars, Hershey’s Kisses Chocolates, Rolo Candies and Hershey’s Syrup. This investment positions Hershey well for global growth over the next century.

In order to ensure future profit, Hershey intends to increase its global presence. This implies that it needs to increase its production scale in order to cater to the increase in demand that would eventually come with the expansion in global market share.

Also, product innovation has always been an important growth strategy for the company. The new facility offers a strong infrastructural base to support future product lines.

The new manufacturing facility will cater to the growing demand for Hershey’s chocolates. The company expects to speed up production and carry on product innovation without compromising on quality. The manufacturing plant features an advanced Information Technology system, which includes highly automated real-time diagnostics systems, thus making it more efficient and capable of continuing operations 24 hours a day.

The facility also comprises the most technologically advanced, automated chocolate syrup manufacturing line in the world. In addition, the plant can produce more than 70 million Hershey’s Kisses Chocolates per day.

The original Hershey plant was located on East Chocolate Ave and operated from 1905 to April 2012. The setting up of the West Hershey facility is a part of the company’s Project Next Century program. The program intends to optimize the cost structure by upgrading the company’s global supply chain. The company has already invested $50 to $75 million to upgrade distribution and administrative facilities in Hershey.

We are impressed by the company’s strong brand positioning, strategic marketing investments in core brands and disciplined innovation. However, higher ingredient costs and lack of significant presence outside the U.S. (more than 80% of the company’s business is generated in the U.S.) keep us on the sidelines. We currently have a Neutral recommendation on The Hershey Company. The stock carries a Zacks #3 Rank (a short-term Hold rating).

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